Can you include closing costs with a USDA loan?
Can you include closing costs with a USDA loan?
As you can imagine, this is a very common question that I receive and because many assume that 100% Financing also means “No out of pocket” expense, it is important to understand how it can be possible to include closing costs with a USDA loan.
Today’s video tip will cover the details about how you can include closing costs with a USDA loan and help to further reduce those out of pocket expenses.
Can you include closing costs with a USDA loan?
USDA loans offer the benefit of 100% financing, or no Down Payment. However, many often assumes this means the same as “No Money out-of-pocket“.
USDA loans eliminate the need for a down payment, but the homebuyer is still responsible for their respective costs. These can be either paid by:
- Using their own funds,
- Negotiating for the seller to pay through the sales contract, or
- In the case of a USDA loan, the ability to finance them into the loan.
When you are buying a home, there are customarily two sets of out of pocket expenses:
- Your Down payment, and
- Settlement Charges otherwise known as closing costs.
While a USDA loan does not require a down payment, here are examples of what settlement charges can be financed into a USDA loan:
- Closing Costs such as title charges, loan costs, survey, recording fees, etc.)
- Pre-paid Items such as your escrow accounts, homeowner’s and flood insurance premiums, and pre-paid interest.
Remember, the ability to finance closing costs into a USDA loan will rely on the appraised value, because if the appraised value is higher than your sales price, then you have the ability to increase your loan amount to finance your settlement charges.
Also, being able to increase your USDA loan amount to include closing costs is a unique feature for USDA home loans, and is not currently available for Conventional, FHA, or VA programs.
Homebuyers should be cautious if they are solely relying on financing closing costs to cover their out-of-pocket expenses, because that is determined by the final appraised value which happens after the sales contract is agreed upon.
Financing closing costs should be viewed as a potential advantage, not a guarantee!
So, yes you can include closing costs with a USDA loan!
